source: Glam and Glitter, Tamara Kalinic
Hermès announced it will open a new workshop to deal with the demand of the Kelly bag. That will be 1st of 5 workshops until 2026 which will focus of production of this model.
The brand has a reputation of being one of the most exclusive luxury brands in the world. As the company continues to expand, there are concerns that this exclusivity and brand image may be compromised. Below, we will examine the potential impact of Hermès' expansion on its exclusivity and brand image and why are new workshops needed for healthy business growth.
Hermès expands globally
In recent years, Hermès has expanded its operations globally. The company has also increased its online presence, making its products more accessible to consumers. While this expansion has allowed Hermès to reach a wider audience, it has raised concerns about the brand's exclusivity.
The risk of expansion
Expanding too quickly can be risky for luxury brands like Hermès. By increasing the availability of its products, the brand may become less exclusive and lose its appeal to wealthy consumers. Additionally, rapid expansion can put a strain on the brand's supply chain and manufacturing processes, potentially compromising the quality of its products.
Maintaining exclusivity
The demand for the Kelly bag models has increased so much over the last few years that with Hermès increasing production, it will actually maintain and even out the demand-supply balance.
To maintain its exclusivity, Hermès plans to continue limiting production and controlling distribution. The brand will continue to use high-quality materials and maintain its focus on craftsmanship.
Despite its expansion, Hermès has taken steps to maintain its exclusivity and brand image. The company has limited the number of products it produces each year, and it has also focused on creating unique and limited-edition products that are only available to a select few consumers.
source: Saclab
Brand's exclusivity
Hermès, the luxury fashion brand, has been maintaining its exclusivity for over 180 years. The brand only produces a limited number of products each year, ensuring that they remain highly coveted and exclusive. This strategy also allows Hermès to maintain control over the quality of its products.
Price Positioning
Hermès' high price positioning enhances its exclusivity, making its products unattainable for most consumers.
Selective Distribution
The brand has a selective distribution strategy to ensure its products align with its values and image. They also limit the production and use its reservation system to ensure only loyal customers can purchase exclusive items.
Why is opening new workshops a good strategy for Hermès
The demand for the Hermès Kelly bag has only increased over the years, with sales reaching over $2 billion in 2019.
Recent Sales Performance
In 2022, Hermès' sales increased by 15% compared to 2021. The biggest growth came from the Asia-Pacific region with a 25% increase in sales.
Revenue Breakdown
The revenue was primarily driven by leather goods, which accounted for 60% of Hermès' total revenue. Ready-to-wear and accessories each accounted for 20% of our revenue.
Sales Trends
Despite its high price, the Hermès Kelly bag has been a consistent bestseller of Hermès. In recent years, the demand for the Kelly bag has increased in emerging markets, such as China and the Middle East. This has led to a rise in prices and limited availability of certain models.
source: FourWeekMBA
Company Profit Margin
Hermès' profit margin remained strong at 35%, despite increased production costs due to global supply chain disruptions in the last year. Cost management will still remain a focus for the brand to maintain their profitability.
Kelly Bag Price and Profit Margin
The price of a Hermès Kelly bag ranges anywhere from $10,000 to over $100,000 depending on the size, model, leather and hardware. The Hermès Kelly 20cm is currently the lowest-priced Kelly model. In Europe, this bag sells for roughly €7000.
Despite the high production cost, Hermès still sees a profit margin of over 45% on each bag sold.
source: Glam and Glitter, Tamara Kalinic
The Hermès Kelly bag is meant to be a symbol of status and exclusivity.
The Hermès Kelly bag is not heavily marketed or advertised, as the brand relies on its exclusivity and reputation to sell its products. The brand's marketing strategy focuses on providing a personalized and luxurious shopping experience for its customers. The brand also collaborates with artists and designers to create limited edition versions of the Kelly bag, which adds to its collectability and exclusivity.
Current Market Demand Trends
The demand for Hermès Kelly bags has been consistently high, with waiting lists for new and popular models extending up to 2 years. The brand also limits the number of bags each customer can purchase to maintain said exclusivity.
This is achieved with limited production and high-quality craftsmanship. Therefore, opening new workshops will not dilute the exclusivity of the item or brand, but rather match the same demand-supply ratio as before (since demand rose so much, but supply remained the same).
2023 Growth Plan
Expansion
In 2023, Hermès plans to open new stores in key markets such as China and the United States. As India's luxury market is emerging, most likely the company already has it on it's radar for future opportunities, but has not announced formal expansion plans into India or other emerging markets yet.
The brand will also focus on expanding their e-commerce platform to increase accessibility for our customers for categories and product lines they plan to increase and push (ready-to-wear and accessories) and optimising the website for better user experience.
Most likely Hermès will also introduce new products and collaborations with exclusive partners and introduce new exclusive events, experiential marketing and maybe even explore the expansion (for home collection and other already existing categories) and/or presence in the lifestyle market which became increasingly popular in the last 3 years in the luxury fashion market (spas, restaurants, resorts, etc.).
Collaborations with Exclusive Partners
Hermès will collaborate with selected partners to maintain its exclusivity. These collaborations will include limited-edition products and unique experiences that are only available to select customers. The key in this strategy is for Hermès to carefully choose its partners to ensure that they align with the brand's values and exclusivity.
Sustainability Goal
Hermès' goal is to continue to provide high-quality luxury goods while maintaining its commitment to sustainability by invest in sustainable materials to reduce its environmental impact.
source: the Globe and Mail
Future Prospects
The demand for Hermès Kelly bags is expected to continue growing due to its exclusivity and timeless design. In addition, the rising number of high-net-worth individuals in emerging economies will create new opportunities for the luxury market.
So with the profit and sales trend it had in the last 3 years, the plan to open 5 new workshops until 2026 seems like a good growth strategy that does not damage brand's image.
Conclusion
In conclusion, Hermès plans to maintain its exclusivity by limiting production, controlling distribution, collaborating with exclusive partners, and continuing to innovate and create new products.
Nevertheless, Hermès' expansion has both benefits and risks for the brand. While increased accessibility may help the company reach new consumers and increase sales, it also poses a threat to its exclusivity and brand image if strategy is not executed correctly within a certain timeframe. However, by taking a strategic approach to expansion and maintaining its focus on quality and unique products, Hermès will continue to thrive as a leading luxury brand.
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